Cartwright, Peter (2016) Redress compliance and
choice: Enhanced Consumer Measures and the retreat
from punishment in the Consumer Rights Act 2015.
Cambridge Law Journal . ISSN 1469-2139 (In Press)
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REDRESS COMPLIANCE AND CHOICE: ENHANCED CONSUMER MEASURES
AND THE RETREAT FROM PUNISHMENT IN THE CONSUMER RIGHTS ACT
2015
PETER CARTWRIGHT*
ABSTRACT. This article examines critically the extent to which the availability of
Enhanced Consumer Measures (ECMs) created by the Consumer Rights Act 2015
addresses the problems associated with the enforcement of consumer protection law in
the UK. The article explains the genesis of the provisions by establishing the limitations
of the previous law before moving on to consider the extent to which ECMs are
successful in addressing those limitations. The article argues that while the availability of
ECMs will potentially improve the ability of both enforcers and courts to achieve some
objectives of consumer protection law, the measures raise some significant concerns. Of
particular concern is the extent to which they signal a move away from prosecution in
cases where that would be the optimal response, and so compromise the ability of
consumer protection law to achieve some of its most important objectives.
KEYWORDS: consumer protection, criminal law, enforcement, consumer rights.
I.
INTRODUCTION
Consumer law in the UK has always comprised both public and private law.1 The principal
aims of consumer law include protecting consumers from harm, raising trading
standards, and providing redress where harm or loss is caused. The methods by which
these relatively simple objectives are achieved are, however, varied and fragmented.
Despite considerable attention being paid to the limitations of the criminal law, the
objectives of protecting consumers from harm and raising trading standards have longbeen achieved primarily through the creation and enforcement of regulatory offences.2
*Professor of Consumer Protection Law, University of Nottingham, UK. I would like to thank Richard Hyde of
the University of Nottingham, Geraint Howells of the City University of Hong Kong and Claire Andrews of
Gough Square Chambers as well as the anonymous reviewer(s) for helpful comments on earlier drafts. The
usual disclaimer applies. Address for Correspondence: School of Law University of Nottingham NG7 2RD, UK.
Email: [email protected].
1
2
The number of laws is too great to repeat here.
P. Cartwright, Consumer Protection and the Criminal Law (Cambridge 2001).
1
The enforcement of these offences may be formal (through prosecution) or informal
(through compliance strategies).3 However they are enforced, regulatory offences in
areas such as consumer protection and environmental law have been found to be of
limited utility in achieving the objectives they might be expected to achieve. 4 Where the
civil law provides enforcers with mechanisms for preventing harm (such as through the
seeking of undertakings and the making of orders under part 8 of the Enterprise Act) it
has also been found wanting. This is both because of the cumbersome procedures that
enforcers must follow, and because of the limited remedies they could obtain. With
regard to redress, emphasis has long been placed upon what has been called the
“individual claims paradigm” with affected individuals expected to pursue their rights. 5
Whether it be enforced through the courts or through alternative dispute resolution
(ADR) the private law has remained central. This is a significant constraint on the
achieving of justice for consumers as the transaction costs they face in seeking redress
will frequently be prohibitive.6 As Leff famously commented: “[o]ne cannot think of a
more expensive and frustrating course than to seek to regulate goods or ‘contract’
quality through repeated lawsuits against inventive ‘wrongdoers.’”7
The Consumer Rights Act 2015, which received Royal Assent on 26th March,
makes highly significant changes to these areas of consumer law in the UK. Much
attention has been paid to its implications for consumer contract law, especially in
reforming the private law relating to sale of goods, supply of services and digital content,
and unfair contract terms. However, the Act also makes highly significant changes to the
regulatory side of consumer law (what is perhaps more commonly called consumer
protection law) through the creation of Enhanced Consumer Measures (hereafter, ECMs).
These changes have major implications for the success of consumer law as a form of
protection, as a way of raising standards, and as a means to facilitating redress. They
therefore go some way towards securing some of the principal objectives of consumer
protection law. They also potentially assist consumers to play the role envisaged for
them by classical economic theory of making informed choices in accordance with their
preferences and so exercising market discipline.8
This article examines critically the extent to which the availability of ECMs
addresses the problems associated with the enforcement of consumer protection law in
3
See R. Macrory, Regulatory Justice: Making Sanctions Effective (Nov 2006) and A.J. Reiss, "Selecting
Strategies of Social Control Over Organisational Life" in K. Hawkins and J. Thomas (eds), Enforcing
Regulation (Boston 1984)
4
R. Macrory Regulatory Justice.
5
See T. Wilhelmsson “Consumer Law and Social Justice” in I. Ramsay (ed) Consumer Law in the Global
Economy (Aldershot 1997) 217.
6
Ibid.
7
A Leff “Unconscionability and the Crowd: Consumers and the Common Law Tradition” (1970) University of
Pittsburgh L Rev 349 at 356.
8
I. Ramsay Rationales for Intervention in the Consumer Marketplace (London 1984).
2
the UK. The article begins by explaining the genesis of the provisions by establishing and
explaining the principal limitations of the previous law. It then moves on to consider in
detail the extent to which ECMs are successful in addressing those limitations. The article
argues that while the availability of ECMs will potentially improve the ability of both
enforcers and the courts to achieve some of the most important objectives of consumer
protection law, they nevertheless raise some significant questions. Of particular concern
is the extent to which they signal an undesirable move away from prosecution in cases
where that would be the optimal response and so compromise the ability of consumer
protection law to achieve some of its most important objectives. 9
II. THE NEED FOR REFORM
A. Protecting Consumers through the Regulatory Offence: characteristics and
shortcomings
It is widely recognised that enforcers have lacked the enforcement tools to allow them to
achieve their objectives satisfactorily. The Hampton Report (“Hampton”) was established
to consider how administrative burdens on business might be reduced by promoting
more efficient approaches to regulatory inspection and enforcement while not reducing
regulatory outcomes. Hampton made a number of recommendations, including the
greater
use
of
risk-assessments
and
better
targeting
of
resources. 10
It
also
recommended the establishment of a review of regulators’ penalty regimes, which it
viewed as operating ineffectively, particularly as a deterrent.11 The review was
undertaken by Professor Richard Macrory who produced a consultation document
(Regulatory Justice: Sanctioning in a post-Hampton world) which analysed the
shortcomings of the existing law and set out a taxonomy of “Penalties Principles” that
might be applied in future
Sanctions Effective.
13
12
This led to the final report Regulatory Justice: Making
The references to Regulatory Justice below are to the consultation
paper where the principles were developed.
Regulatory Justice concluded that enforcers relied too heavily upon securing
compliance with norms by prosecuting (or threatening to prosecute) traders for breach
of regulatory offences.14 The principal reason for this was that enforcers lacked tools to
help them to achieve their objectives. Other studies have confirmed these shortcomings
9
This contrasts sharply with a theme identified a decade earlier towards criminal sanctions in regulation. See in
particular R. Baldwin “the New Punitive Regulation” (2004) 67(3) M.L.R. 351.
10
P. Hampton Reducing Administrative Burdens (London March 2005)
11
Ibid recommendation 8.
12
Regulatory Justice: Sanctioning in a post-Hampton World (May 2006) (hereafter “Macrory”) CHECK
13
Regulatory Justice: Making Sanctions Effective (November 2006).
14
Macrory chap 2.
3
in the context of consumer protection law, with particular focus on the difficulties
consumers faced in receiving redress (broadly understood).15
While not formally distinct from more mainstream criminal law, regulatory
offences are said to possess certain characteristics. According to Ramsay, those
characteristics are as follows.16 First, regulatory offences impose strict liability, tempered
by statutory defences. Second, they employ fines as the primary sanction. Third, they
are enforced by a specialised bureaucracy who will exercise discretion in the form of
compliance strategies. Finally, cases are heard mainly in the magistrates courts with
higher courts playing a role in the interpretation of the statute in question. To this, we
might add two elements: that such offences typically require the defendant to be acting
in the course of business, and that they may lack the stigma more commonly associated
with the label of criminality.17 Regulatory Justice identified the following as particular
limitations of regulatory offences.
First, regulatory offences are inadequate as a deterrent.18 Traders know that they
will seldom be prosecuted, and that when they are, penalties are likely to be low. The
theory of optimal deterrence suggests that a rational firm will comply where pD>U,
where p represents the perceived probability of apprehension and conviction, D the
perceived cost of contravention and U the perceived benefit from contravention.19 While
this model may not reflect accurately the motivation of many firms, to the extent that
firms are purely profit maximisers or “amoral calculators” it seems unlikely that
regulatory offences operate effectively as deterrents. One reason is that regulatory
offences are typically enforced through “compliance strategies”. A compliance strategy
has been said to have as its aim securing conformity with the law “by means of ensuring
compliance or by taking action to prevent potential law violation without the necessity to
detect, process and penalise violations.”20 This contrasts with a deterrence strategy, the
aim of which is “to secure conformity with the law by detecting violation, determining
who is responsible for the violation, and penalising violations to deter violations in the
future, either by those who are punished or by those who might do so were violations
not penalised”.21
The use of compliance strategies can be justified on a number of
grounds. In particular, informal action such as persuasion or negotiation may use far
fewer resources than formal action; but such an approach is also likely to create better
15
J. Peysner and A. Nurse Representative Actions and Restorative Justice (Lincoln Dec 2008); UEA
Benchmarking the UK Framework Supporting Consumer Empowerment (ESRC Centre for Competition Policy
2008).
16
I. Ramsay Consumer Law and Policy 3rd ed (Oxford 2012), 221-22.
17
See P. Cartwright “Crime Punishment and Consumer Protection” (2007) 30 J.C.P. 1
18
Macrory para 2.6.
19
See G. Becker “Crime and Punishment: An Economic Approach” (1968) 76 Jl. Pol. Econ 169 and A. Ogus
Regulation : Legal Form and Economic Theory (Oxford 1994) , 91
20
Reiss “Selecting Strategies” 23
21
Ibid 22-23.
4
relations between enforcer and trader. Many contraventions of consumer protection law
are accidental rather than intentional, and formal action may be a disproportionate and
counterproductive response; this is particularly so where the harm is small and the
trader is eager to comply. The predominance of compliance strategies does not mean
that enforcers will never prosecute, nor that they will fail to negotiate with the threat of
such action in the background. Ayres and Braithwaite conclude that the optimal
enforcement approach is what they describe as “tit for tat”.22 This means that the
enforcer only shifts from a co-operative to a deterrent approach “when the firm yields to
the temptation to exploit the co-operative posture of the regulator and cheats on
compliance”.23 This may reflect the approach of enforcers where consumer protection is
concerned.
Second, the Report suggests that prosecution is sometimes a disproportionate
response to a contravention.24 While this may appear paradoxical to the first point
above, it demonstrates the unpredictability of both prosecution and the effect of
conviction. Well-informed traders are likely to know the maximum penalty that a court
can impose for breach of a particular provision, and may even know the penalty that a
court is likely to impose for such breach. However, the trader will not be able to predict
the other impact that results from conviction, in particular from adverse publicity. 25
While the fear of such publicity might improve the operation of regulatory offences as
deterrents, its consequences could be disproportionate to the harm and wrongdoing
involved.26
A third criticism is that regulatory offences are resource-intensive.27 Ogus found
that in relation to consumer protection offences, trading standards officers would
typically spend one day investigating a contravention, two issuing informal cautions, four
issuing formal cautions and ten preparing prosecutions. 28 Data presented to BIS by
Surrey Trading Standards suggested that the average cost of bringing a criminal case
was £1270 where guilty plea was entered and £3860 where the case was contested.29 It
is difficult to assess precisely the impact this has on enforcement behaviour. However, it
is reasonable to assume that enforcers will be reluctant to prosecute unless they are
confident of success and do not have an appropriate alternative route.
22
I. Ayres and J. Braithwaite Responsive Regulation: Transcending the Deregulation Debate (New York 1992)
Ibid 21.
24
Macrory para 2.24.
25
See J.C. Coffee Jr “No Soul to damn no Body to kick” An Unscandalized Inquiry into the Problem of
Corporate Punishment” (1981) 79 Mich. L. Rev. 386
26
This relates to the issue of stigma, considered below.
27
Macrory para 1.14.
28
A. Ogus “Better Regulation-Better Enforcement” in S Weatherill (ed) Better Regulation (Oxford 2007), 107,
112.
29
BIS Civil Enforcement Remedies – Extending the range of remedies available to public enforcers of consumer
law – impact assessment (Impact Assessment) November 2012 para 25.
23
5
Fourth, Regulatory Justice suggested that regulatory offences can lead to
compliance deficit.30 One reason enforcers seem to find it difficult to secure compliance
is that they are limited in the extent to which they can require firms to act in specific
ways to bring themselves back into compliance and to ensure that breaches are less
likely to happen in future. This is addressed in detail later.
Fifth, concern was expressed that conviction does not necessarily reflect the
stigma that should be attached to the wrongdoing in question.31 There are two concerns
here: first that prosecution generates excessive stigma, and second that it generates
insufficient stigma. One aim of punishment under the criminal law is to ensure just
deserts, and inappropriate labelling can compromise this. Any conviction should, so far
as possible, reflect the seriousness of the wrongdoing, and the principal elements of such
seriousness are culpability and harm. Most regulatory offences are over-inclusive in that
they are satisfied where there is little or no harm and/or culpability.32 However, some
breaches of regulatory offences involve significant levels of harm and culpability. The
regulatory offence is a rather blunt and inflexible tool which is ill-suited to respond to
demands of a regime seeking to ensure just deserts, and the fact of conviction risks
leaving an inappropriate label attached to the defendant.
Finally, Regulatory Justice contended that prosecuting a trader for a regulatory
offence does not focus sufficiently on victims.33 This is surely correct. In the context of
consumer protection, prosecution has been widely regarded as an ineffective means of
achieving restoration/redress.34 Victims will frequently not be involved in proceedings
and in many cases will not be traced. However, as will be explained below, it is
important to remember that there are now several routes to redress that were
unavailable at the time Regulatory Justice was published, and so the criticism may not
be as compelling as it was previously.35
The shortcomings of regulatory offences, and in particular of prosecution as the
means of enforcing them, loomed large in the decision to create ECMs. But equally
important were the limitations of the other principal enforcement tool available to
consumer protection enforcers, namely the ability to seek enforcement orders under Part
8 of the Enterprise Act 2002.
B. Civil Enforcement and Part 8 of the Enterprise Act 2002: Role and Shortcomings
30
Macrory para 2.27.
Macrory paras 2.24 and 3.25.
32
Neither mens rea nor damage/loss are typically required for guilt.
33
Macrory para 1.21.
34
See e.g Peysner and Nurse Representative Actions.
35
See below.
31
6
Part 8 of the Enterprise Act gives enforcers powers to obtain undertakings from traders
and to apply to the courts to make enforcement orders against such traders, where they
breach their legal obligations in a way that harms the collective interests of consumers.
Breaches
are
infringements”.
classified
36
as
either
“domestic
infringements”
or
“Community
A “Community Infringement” is an act or omission which harms the
collective interests of consumers and which contravenes particular legislation (including
the Unfair Commercial Practices Directive 2005 which was implemented in the UK by the
Consumer Protection from Unfair Trading Regulations 2008). Domestic infringements
include breaches of many consumer laws, broadly understood, including those found in
the Consumer Rights Act 2015.
The shortcomings of Part 8 have been well-documented, and it will be seen that
some of these (particularly with regard to procedure) remain under the new regime.
According to s.214(1) of the Enterprise Act, before making an application for an
enforcement order an enforcer must engage in “appropriate consultation” with the
person against whom the order would be made. The period of consultation is at least 14
days beginning with the day on which notice is given. However, this is reduced to seven
for an interim order.37
An interim order can be made where “it is expedient that the
conduct is prohibited or prevented (as the case may be) immediately”.38 What amounts
to appropriate consultation in practice is not entirely clear.39 Lewin and Kirk argue that
the compliance strategies typically adopted by enforcers and discussed above (what they
call “traditional engagement with traders”) will satisfy the requirement, as would
interviews, particularly if it is made clear that part 8 action is envisaged.40 Consultation
can be seen as an important element of the process in that it gives the enforcer the
opportunity to be better-informed about the circumstances of the case of the trader. It is
different from giving notice, and may be particularly important where a well-intentioned
trader is receptive to taking steps to prevent contraventions in future.
Under s.219, if an enforcer has the power to apply for an enforcement order he
may instead accept an undertaking from the person. An undertaking will be complied
with if the person does not continue or repeat the conduct, engage in such conduct in
the course of his business or another business, and does not consent to or connive in the
carrying out of such conduct by a body corporate with which he has a special
relationship.41 In considering whether to make an enforcement order, the court will have
regard to whether the person has given an undertaking and has failed to comply with the
36
Sections 211 and 212 respectively.
Section 214 (1A).
38
Section 218(1)(c).
39
Section 214(2) defines it as consultation for the purpose of achieving particular objectives such as cessation
of, or ensuring there is no repetition of, an infringement.
40
B. Lewin and J. Kirk Trading Standards Law and Practice 2nd ed (Bristol 2011) 49.
41
Section 219(4).
37
7
undertaking. The court may, as an alternative to making an order, accept an
undertaking from the person. Breaching an undertaken given to, or an order made by,
the court places the person in contempt of court.
The limitations of part 8 were in part demonstrated by how rarely it was used. In
2011-12 just seven enforcement orders were made and 99 undertakings given, and
these figures were not atypical.42 There are two main explanations for the reluctance of
enforcers to use part 8. The first is that the procedure described above is so
cumbersome that it provides a significant disincentive to using the provision. Recently,
research undertaken by Karen Clubb on the mis-selling of mobility aids found widespread
dissatisfaction
among
trading
standards
officers
about
the
utility
of
part
8.43
Conversations the author has had with enforcers have confirmed these conclusions more
generally. However, this is not the view of all commentators. Lewin and Kirk describe
part 8 as “a flexible, fast and elegant way of dealing with consumer detriment” where
used properly.44 This appears to be a minority view. In the relatively rare event of a case
going to court there will be significant costs attached. The London Borough of Brent, for
example, has estimated that the typical cost of a civil case was approximately £3375.45
This will provide a disincentive for enforcers to use the procedure and the known
reluctance to go to court may encourage less reputable traders to drag out the process.
As Baroness Crawley observed at the second reading of the Consumer Rights Bill in the
House of Lords: “use of these measures has, in the past, been modest at best, through a
combination of complexity of process, cost and risk to enforcers.” 46
An equally compelling explanation for the reluctance to use part 8 concerns the
limitation in what it could achieve. Before the Consumer Rights Act 2015, part 8 did not
impose any new obligations on businesses; it merely helped to ensure compliance with
existing obligations. Traders could only be obliged to (a) stop breaking the law; and (b)
agree not to break it in future. Perhaps the most striking weakness of part 8 in this
regard was that it did not incorporate a mechanism through which consumers could
receive compensation or similar redress. Although enforcement orders are admissible as
evidence in civil proceedings, consumers still needed to seek redress through the courts
or through an alternative means of dispute resolution.47 In addition, part 8 did not allow
enforcers or the courts to require businesses to take specific steps to improve the
42
BIS Impact Assessment para 23.
See
http://www.derbyshire.gov.uk/images/University%20of%20Derby%20Research%20Project%20into%20the%20
Mis-selling%20of%20Mobility%20Aids%20121113_tcm44-234260.pdf
44
In their view, difficulties have arisen primarily through choosing inappropriate cases and creating undue
delays. Lewin and Kirk Trading Standards Law 45.
45
BIS Impact Assessment para 26. Trading standards officers now have rights of audience although it is not
clear how frequently they will present the case.
46
Consumer Rights Bill 1 July 2014 1666.
47
Although enforcement orders are admissible as evidence in civil proceedings.
43
8
probability of compliance in future. Just as prosecution can be viewed as a blunt
instrument to achieve the main objectives of consumer protection policy, so could part 8.
To the extent that these limitations explain the reluctance to use Part 8, the proposed
reforms may make it a more attractive prospect. It is to the reforms that we now turn.
III: REFORM THROUGH ENHANCED CONSUMER MEASURES
A. Objectives and Choices
Difficulties with ensuring the effective enforcement of consumer law through the
combination of prosecution and part 8 led the Government to look at reform. In its paper
Civil Enforcement Remedies, the Department for Business Innovation and Skills (BIS)
identified the key outcomes it sought as follows.48 First was improving business
compliance with the law; it aimed to achieve this by developing what it described as
“forward looking measures to ensure the same or similar breach does not reoccur”.49
Second was improved redress for consumers affected by the breach of consumer law.
This would be ensured by providing appropriate consumer redress schemes. The third
objective was to develop more confident consumers who are empowered to exercise
greater consumer choice. BIS saw this as being achieved by “measures to improve the
ability of new and existing customers to make a free and informed choice”.50
To some extent, these objectives reflected the “Penalties Principles” outlined in
Regulatory Justice.51 Macrory hoped these would build “a common understanding of what
a sanctioning regime should achieve amongst regulators and the regulated community,
and in turn… act as a framework for regulators when considering what sort of sanction or
enforcement action to take.”52 According to the Principles, a sanction should do the
following: aim to change the behaviour of the offender; aim to eliminate any financial
gain or benefit from non-compliance; be responsive and consider what is appropriate for
the particular offender and regulatory issue, which can include punishment and the
public stigma that should be associated with a criminal conviction; be proportionate to
the nature of the offence and the harm caused; aim to restore the harm caused by
regulatory
non-compliance,
where
appropriate;
and
aim
to
deter
future
non-
compliance.53 These will be reflected upon in the context of the reforms.
The Government identified two ways of meeting its objectives. The first was
giving enforcers additional administrative powers along the lines of those contained in
48
BIS Civil Enforcement Remedies: Consultation on extending the range of remedies available to public
enforcers of consumer law (“Civil Enforcement Remedies”) (Nov 2012) para 4.
49
Ibid
50
Ibid
51
Macrory.
52
Macrory Making Sanctions Effective para 2.3.
53
Macrory box E2.
9
the Regulatory Enforcement and Sanctions Act 2008 (RESA) and the second was giving
the courts additional powers in the making of orders under the Enterprise Act. 54 There
were strong arguments for some form of civil penalties regime. Macrory interpreted the
notion of “sanctions” and “penalties” very broadly to include tools that involve some
element of punishment and those which are focused instead on achieving an outcome
regardless of any punitive notion. However, the Government decided instead to extend
the range of remedies covered by Enforcement Orders. These provisions, known now as
Enhanced Consumer Measures (ECMs) are contained in Schedule Seven of the Consumer
Rights Act 2015 (CRA).
ECMs are central to the reforms the CRA makes to part 8 of the Enterprise Act
and operate in two ways. First, when the court makes an enforcement order or accepts
an undertaking from a trader, it will now be able to attach to them a range of ECMs.
Instead of merely requiring the trader to stop breaching the law, the court will be able to
require the trader to take a series of positive actions. Second, where an enforcer has
agreed undertakings under Part 8, those undertakings may include ECMs. Again, the
trader can therefore be required to act in a particular way, rather than merely required
not to act in a particular way. The powers are open to all enforcers under Part 8
including Which?, the only designated private enforcer. As they are based on the powers
in part 8, they can be used to tackle breaches and potential breaches of a variety of
consumer protection law. However, this article focuses particularly on their use where
criminal laws are breached.
There are three categories of ECM: the redress category; the compliance
category; and the choice category, and the measures may be used either individually or
in combination.55 There will be occasions, for example, where it is appropriate for a
trader to be required to pay redress, change its conduct, and publicise the details of its
infringements. This is particularly important, because, as will become apparent, the
different types of measure have specific objectives and address different weaknesses in
the enforcement regime. However, there are a number of constraints placed upon
enforcers which may reduce the ability to do this in practice. For example, section
291B(1) states that an enforcement order or undertaking may include only such
enhanced consumer measures as the court or enforcer considers to be just and
reasonable. Particular attention must be paid to the proportionality of the measure,
taking into account:
(a)
The likely benefit of the measures to consumers;
54
BIS Civil Enforcement Remedies: chap 2. RESA was introduced as a way of implementing Macrory’s
proposals but does not apply to consumer protection.
55
BIS Enhanced Consumer Measures – Guidance for Enforcers of Consumer Law May 2015 (“2015
Guidance”) Case Study 3.
10
(b)
The costs likely to be incurred by the subject of the order or undertaking (namely
the cost of the measures and the reasonable administrative costs associated with taking
the measures); and
(c)
The likely cost to consumers of obtaining the benefit of the measures.
It is customary for proportionality to be demanded of enforcers, either in legislation
or through other means (such as the Regulators’ Code). This is entirely proper. Indeed,
Regulatory Justice emphasised that any sanction (a term that, as noted above, was used
extremely broadly) should be proportionate to the nature of the offence and the harm
caused.56 But if we look further at the limitations placed on some ECMs there may be
some concerns with how practical these demands are. This is most obviously the case in
relation to redress schemes. Each category is now examined in turn.
B. ECMs: The Redress Category
Section 219A(2) states that measures in the redress category are:
(a) measures offering compensation or other redress to consumers who have
suffered loss as a result of the conduct which has given rise to the enforcement
order or undertaking,
(b) where the conduct referred to in paragraph (a) relates to a contract, measures
offering such consumers the option to terminate (but not vary) that contract,
(c) where such consumers cannot be identified, or cannot be identified without
disproportionate cost to the subject of the enforcement order or undertaking,
measures intended to be in the collective interests of consumers.
This category provides enforcers with a tool to address some of the limitations of
consumer law identified above by providing consumers with redress. That redress might
be in the form of financial compensation, or in the right to terminate a contract,
presumably with the normal restitutionary consequences. Although not presented as
such in the Legislation, redress measures are the primary form of ECM in that where
taking action under all three measures would be disproportionate, redress measures take
priority.57 As noted above, Regulatory Justice identified one of the weaknesses of the
regulatory offence as being the lack of focus it placed on the victim. It also emphasised
the importance of having provisions which aim to restore the harm that was caused by
56
57
Macrory box E2.
2015 Guidance para 48.
11
regulatory non-compliance. In the context of consumer protection restoration, in the
form of redress, is especially important. For that reason, particular attention is paid here
to the redress category.
The roles of enforcer and trader
There is uncertainty about the extent to which traders or enforcers act as the genesis for
redress. At the time of the consultation, it was central to the Government’s vision that
the trader should come up with a proposed solution. The Government stated that its aim
was that “the business would propose a scheme which they would agree with the
relevant enforcer” although “where the business is unwilling to propose an appropriate
scheme, the enforcer could seek a requirement through the civil courts that the trader
offers redress to consumers.”58 This reflects one of the aims of Regulatory Justice– that
businesses should be able to offer creative solutions to breaches.59 In its written briefing
on the Bill, the Law Society argued that this was an important element in the rationale
for ECMs but noted that the Bill had not made reference to this.60 The Guidance makes it
clear that businesses can suggest solutions. It states, for instance, that the Legislation
does not list possible measures, partly to enable the enforcer to choose the most
appropriate measure but also to enable the business “to have the flexibility to suggest
their own measures to put right the detriment they have caused.”61 The Guidance does,
however, emphasise the primary role of the enforcer, stating that “[i]n the first instance
the enforcer should seek to work with the trader that has breached to law to identify
suitable measures to deal with the breach.”62 It later states: “we expect in most cases
that the enforcer will propose the measures to be put in place.” 63
This represents a shift in the balance of responsibilities from the business to the
enforcer. In some ways this may be understandable. ECMs are an alternative to other
forms of enforcement action, so it may be reasonable for the enforcer to take an
objective view of what, precisely, the trader should be required to do. However, placing
the onus on enforcers in this way does have shortcomings. First, it might be viewed as
an impediment to the objective of responsibilising traders. Regulation is most likely to be
successful where it incentivises firms to comply with norms in the first place and to take
responsibility for harm where it has been caused. Responsive regulation, as explained by
Ayres and Braithwaite, recognises that traders will feel under incentives to do this where
58
BIS Draft Consumer Rights Bill Government Response to the Consultations on Consumer Rights June 2013 p
48.
59
This takes the form of enforcement undertakings in RESA.
60
Law Society Civil Enforcement Remedies January 2013.
61
2015 Guidance para 45.
62
2015 Guidance para 28.
63
2015 Guidance para 73.
12
they see enforcers responding positively to appropriate behaviour. 64 Generating an
expectation that traders will initiate discussions and offer solutions helps to create a
culture of responsibility. Indeed, on the assumption that traders are more likely to
comply where they feel some ownership of the solution, it may be more effective to
encourage and incentivise traders to develop their own responses. Second, it is a widelyaccepted criticism of both prosecution and part 8 that they are resource- intensive.
There is ample evidence a recalcitrant trader can cause significant difficulties for an
enforcer wishing to use Part 8, and while this problem remains under the new regime, it
might be mitigated by giving traders some influence (at an earlier stage) over the
content of ECMs. To the extent that traders rather than enforcers develop proposals for
redress, enforcers’ (increasingly) scarce resources are protected.
Proportionality, redress and deterrence
In addition to the requirement for proportionality noted above, section 219B(4) states
that an order or undertaking may include enhanced consumer measures in the redress
category:
(a) only in a loss case, and
(b) only if the court or enforcer (as the case may be) is satisfied that the cost of such
measures to the subject of the enforcement order or undertaking is unlikely to be
more than the sum of the losses suffered by consumers as a result of the conduct
which has given rise to the enforcement order or undertaking.
This means that redress measures can only be used if the amount payable as
compensation is likely to be no more than the losses suffered by consumers as a result
of the conduct. It is the responsibility of the enforcer to decide whether redress should
be paid, to calculate the loss that consumers have suffered and to calculate the cost to
the trader of compliance.65 The OFT raised significant concerns about this.66 First, it
doubted whether such obligations were necessary, given that enforcers are required to
comply with the better regulation principles and the regulators’ code in relation to the
use their powers. Second, it drew attention to the consequences of failing to quantify
these elements accurately. If the enforcer underestimates the detriment and the amount
of redress available, consumers may challenge the scheme or ignore it. If the trader
alleges that the enforcer has underestimated the cost of compliance it may challenge the
measures as being disproportionate. The OFT concluded that it would be preferable to
adopt a model similar to that found in the Financial Services and Markets Act 2000,
64
Ayres and Braithwaite Responsive Regulation.
2015 Guidance para 53.
66
OFT Consultation Response
65
13
where greater onus is placed on the business to carry out investigations, provide the
enforcer with information and consult before establishing the scheme. 67 Of course, where
redress schemes are proposed, businesses will play an important role in operating those
schemes, for example by identifying and contacting consumers.
Regulatory Justice stated that one aim of a sanction was to eliminate the financial
gain or benefit from non-compliance. The Redress measures focus less on ensuring that
a trader does not gain from contravention, and more on ensuring that the measures do
not impose a greater cost on the trader than the loss to the consumer. In the desire to
ensure proportionality, it might be argued that sight has been lost of the need to
eliminate any gain and provide appropriate redress. Moreover, by focusing on the need
to avoid benefits to consumers being greater than losses to traders, the need for
deterrence could be lost.
One justification for placing such stringent obligations on enforcers is that the redress
category is concerned solely with redress. It is not to be viewed as a punishment or, as
the term is typically used, a sanction. However, it is submitted that ECMs should be able
to play a role in deterrence. In this regard, they appear to fall short. A profit-maximising
trader which believes it is unlikely to be prosecuted for a consumer protection offence
may decide to cause loss to consumers safe in the knowledge that it will not be required
through the redress category to pay more than the consumers have lost. Referring back
to optimal deterrence, the perceived benefit of contravention outweighs (perhaps
significantly) the perceived detriment. Most traders will not be quite so calculating; and
there is evidence that traders comply with the law for a range of reasons beyond the
threat of a sanction or financial loss. 68 However, some will take advantage and the
restrictions on enforcers’ powers appear to limit the ability for redress measures to
ensure deterrence. While the principal aim of redress measures is to provide redress,
given that they will frequently be used as an alternative to prosecution, it is important
that deterrence is not lost.
It is true that there are some ways in which redress measures may still incorporate
an element of deterrence. First, the cost referred to in section 219B(4)(b) does not
include the administrative costs associated with taking the measures. In practice, that
may provide some limited deterrent, as the costs of complying with the measure may
mean that a trader will be obliged to expend more through a combination of
compensation and compliance costs that s/he received as a result of the contravention.
Second, it is possible that the trader will receive some negative publicity as a result of
establishing the scheme. The choice category (considered below) is largely premised on
the desirability of consumers having information about the wrongdoing (broadly
67
Ibid
See e.g. OFT Consumer Law and Business Practice (OFT 1225 June 2010); S Oded Corporate Compliance
(Cheltenham 2013) para 3.2.1.
68
14
understood) of traders, but that information may also emerge through the creation of
redress schemes. The CRA makes clear that a publication requirement that is included in
an enforcement order or undertaking is not an ECM, and businesses are often required to
publish the terms of undertakings along with a corrective statement. Publication is
important both to inform consumers of the trader’s wrongdoing, and to assist monitoring
that trader’s conduct to see if undertakings or orders are breached. Regulatory Justice
saw it is important that enforcers should consider what is appropriate including the
stigma that should be associated with a criminal conviction.69 It should be remembered
that ECMs will generally be used where there is no conviction, and may be used where
there is no offence (although this article is of course focusing on where the criminal law
has been breached). Negative publicity will generally aid deterrence but it is vital for
proportionality and fair labelling, that it accurately reflects the wrongdoing involved.
Redress measures in context
It is easier for consumers to receive redress under other provisions than it was when
ECMs were first being formulated. This is an important factor in assessing the costs and
benefits of redress under the CRA. First, section 63 of the Legal Aid, Sentencing and
Punishment of Offenders Act 2012 inserts into s.130 of the Powers of Criminal Courts
(Sentencing) Act 2000 an obligation for the court to consider making a compensation
order in any case where the section empowers it to do so. Where a prosecution is
successful, for example under the CPUTRs, and a consumer has suffered loss, the use of
this power avoids consumers having to pursue the matter further. While this will be
useful in some cases, it should be remembered that the power to make compensation
orders has been available for decades but has been rarely used in consumer protection
cases. The OFT Annual Report for 2011-12 identified that the 1860 prosecutions under
consumer protection legislation resulted in less than £100,000 of compensation in total.
While this relates to a period before the 2012 Act (when there was merely a discretion to
consider compensation orders) it is not clear that the legislation will make a significant
difference. One reason is that in consumer protection cases, the criminal courts will
seldom have details of all victims at the time of sentencing. As a result, the
compensation order may not be an appropriate method of providing redress. Another is
that an important aim of ECMs is to take cases away from the criminal courts, so in most
cases where redress would be appropriate there will be no prosecution for a
compensation order to follow.70
A second development is that the Consumer Protection (Amendment) Regulations
2014 give consumers private law rights where certain provisions of the CPRs are
69
70
Macrory box E2.
Given the compliance stance of enforcers prosecution is not the norm now.
15
breached. Where a consumer enters into a contract or makes a payment, the trader
engages in a prohibited practice (meaning an aggressive or misleading action) and that
practice is a significant factor in the consumer’s decision to enter the contract or make
the payment, the consumer will be entitled to redress. 71 If the trader does not
voluntarily pay compensation, the consumer will need to pursue the matter. This may be
made easier with the implementation of the Directive on Consumer ADR by the
Alternative Dispute Resolution Regulations 2015. The Directive aims to give EU
consumers the opportunity to resolve disputes without going to court, regardless of
product, the service type or the place of purchase. Although there is no obligation on
most traders to agree to use ADR it will in practice give many consumers an additional
avenue for redress. One interesting argument that might be made is that the existence
of alternative routes to redress (such as ADR) makes redress schemes disproportionate.
However, compensation orders, the private right to redress and ADR are all best-suited
to cases where there is one victim, or a small number of easily identifiable victims. In
cases where loss is more widespread, ECMs are likely to be particularly appropriate.
Limitations and innovations
There remains a lack of detail about how redress schemes will operate, but some aspects
(and limitations) are clear. BIS has stated that the remedies would be based around
“mechanistic schemes to deliver particular outcomes rather than the outcomes
themselves” and that “performance would therefore be based on the technical
requirements of the individual schemes.” 72 This means that consumers may not get
100% of their money back through a scheme. For example, there will be cases when a
large number of consumers have suffered different levels of loss. It may be judged in
such cases that it would not be just and reasonable to impose a scheme, or that it would
only be just and reasonable to do so if a trader can make consumers an offer based on
the average of the loss.73 This would merely be an offer. There is no obligation on
consumers to accept that offer and they can always pursue other means to obtain
redress. It will, however, be possible for the trader to require that if a consumer accepts
redress under the Scheme he or she waives the right to take additional action to recover
the money.74 They cannot, however, require the consumer to waive any right in relation
to other conduct of the business. Where consumers may not receive 100% of their loss
this would have to be made clear to them. There may be other ways in which schemes
are potentially less attractive than alternatives. For example, a redress scheme might set
71
Regulation 27A.
BIS Consumer Rights Bill: Proposals on Enhanced Enforcement Remedies Impact Assessment: Final
(“Impact Assessment”) (June 2013) para 44
73
See 2015 Guidance para 59.
74
2015 Guidance para 58.
72
16
its own remoteness rules to govern what is within its scope. It is not clear to what extent
traders will be required to draw attention to all such matters, and it is vital that
consumers are aware of their options. This does create the danger that consumers will
be overwhelmed with options. One of the aims of the review of consumer law was
simplification, but the redress landscape is arguably as complex as, if not more complex
than, ever.
One innovative aspect of the Redress Category is that enforcers may use it to pursue
measures that are in the collective interests of consumers. An example of how this might
operate is provided in the Guidance.75 In this example, a petrol station with a record of
compliance was discovered to have faults with 3 of its 12 pumps, resulting in their
dispensing a quarter of a litre less fuel than is shown on the pump. Working with the
enforcer, the owner discovered that the faulty pumps had been used 5000 times with
each customer being overcharged £3 on average. It was not possible to identify the
affected customers, at which point the owner became uncooperative. The enforcer
judged that it would not be just, reasonable and proportionate to require the business to
try to compensate the individual customers in these circumstances. The low amount of
loss per customer and the difficulty of identifying the customers in question meant that a
redress measure to compensate them would not be appropriate. In cases such as this,
ECMs allow action to be taken which removes the profit from the activity, but does not
compensate the affected consumers. The Guidance suggests that in this case, the
enforcer could bring a civil action to obtain an order for the business to pay £15,000 to a
local consumer charity. In some cases an ECM might include a combination of
compensation to consumers and a payment in the collective interests of consumers. For
example, if the business were able to identify a proportion of individual consumers who
had been overcharged, such as those who had paid by credit card, it would be possible
to require the business to compensate those and to pay the balance (up to the amount
the business had benefited from the error) to charity.76
Some difficult questions are left unanswered. For instance, in the example above the
trader paid £15,000 to a charity because it was deemed that consumers could not be
traced. In other cases, those consumers who could be traced were compensated, and a
payment made to a charity to reflect the difference between the compensation and the
benefit gained. In both cases, the trader paid an amount to reflect the gain. But what
happens if the other consumers subsequently come forward to demand compensation? It
is presumed that they will be compensated through other means and it is foreseeable
that this will happen. As explained above, redress measures cannot be used where the
cost of the measures is unlikely to be more than the sum of the losses suffered by
75
76
2015 Guidance Case Study 6.
Ibid.
17
consumers. In such a case the cost of the measures is not (it is 15k and the consumers
have lost 15k) but the total cost to the business will be more if it also has to compensate
individuals outside those measures. It might be possible for businesses to argue that the
uncertainty about whether consumers will pursue action for redress makes a payment to
charity which reflects the full amount lost disproportionate. It is submitted that such an
argument should fail. It is important that the business in question does not benefit from
its wrongdoing (even where that wrongdoing lacks any significant culpability) and that
consumers should not lose their right to compensation. A difference can be drawn
between the amount of the redress measures (in this example 15k) and the amount of
the redress (15k plus redress paid outside the measures).
It is important the traders take all reasonable steps to contact affected individuals,
for example by advertising in national, regional or specialist press and by making use of
social media. It will be up to enforcers and the courts to ensure that they do this.
However, traders may be under incentives not to take such steps. For instance, they
may regard it as simpler and potentially more beneficial to pay money to charity and try
to gain some positive publicity for doing so. There is evidence that under RESA, traders
will frequently make charitable donations (such as to environmental groups) as part of
an
enforcement
undertaking.77 It
should
be noted
that
where
areas such
as
environmental law are concerned, paying money to a charity may be more appropriate
than paying to victims, because of the difficulty of identifying (let along quantifying loss
to) them. Nevertheless, there are many concerns with using charitable donations as an
alternative to punishment. It is not possible to do them justice here, but particular
concerns include who decides on the recipient and on what basis, what accountability (if
any) there is over donations.78 Furthermore, there must be concern that a donation is
interpreted by the public as an act of generosity and goodwill rather than as a sanction
for wrongdoing. Regulatory Justice identified one of the weaknesses of regulatory
offences as being the failure of prosecution to reflect stigma accurately. It is vital that
traders do not use these measures to gain underserved positive publicity. 79
C. ECMs: The Compliance Category
Section 219A(3) states that the measures in the compliance category are:
“measures intended to prevent or reduce the risk of the occurrence or repetition
of the conduct to which the enforcement order or undertaking relates including
77
See O.W. Pederson “Environmental Enforcement Undertakings and Possible
Implications: Responsive, Smarter or Rent Seeking?” (2013) 76(2) M.L.R 319.
78
Ibid, 333-341.
79
In a slightly different context, see the case study on Kepone and Allied Chemical in B. Fisse and J.
Braithwaite The Impact of Publicity on Corporate Offenders (Albany 1983) chap 6.
18
measures with that purpose which may have the effect of improving compliance
with consumer law more generally.”
The focus here is not on looking at how redress can be provided for past breaches, but
on how future breaches might best be avoided. Regulatory Justice pointed to
“compliance deficit” being one of the limitations of prosecution, with courts and enforcers
limited in their ability (a) to require firms to act in specific ways to bring themselves
back into compliance; and (b) to ensure that breaches are less likely to happen in future.
Whereas Macrory saw these functions being achieved through compliance notices, the
CRA envisages their being delivered through the compliance category of ECMs. As with
the redress category, there is an emphasis on flexibility and this explains why there is no
list of actions in the Legislation. However, the Guidance does identify some possible
measures which appear to fall within this category, namely: signing up to a Primary
Authority Scheme; appointing a compliance officer; providing better staff training and
guidance; undertaking internal spot checks (and keeping records of these); collecting
and acting on consumer feedback; introducing a robust complaints handling scheme;
and signing up to a certified ADR Scheme and committing to be bound by its decisions.80
The Guidance gives an illustration of how this power might operate. In this
example, a consumer paid an online retailer an additional fee for next day delivery but
found that the goods were delivered late. Enforcers investigated and discovered that this
was the result of short-term staff shortages and poor staff training. Some steps were
taken voluntarily by the firm: consumers were refunded their additional fee and
temporary staff were sought. However, the firm refused to take steps to improve the
staff training which enforcers believed to be necessary to avoid repetition of the delays.
The enforcer sought an enforcement order to change and improve staff training and to
designate a member of staff to act as a customer complaints manager. The Court
regarded the proposed measures are just, reasonable and proportionate and that they
would ensure there is no repeat of the breach.81
There are a number of difficulties with this example. First, it is rare that such
facts would arise. A trader that is generally compliant and responsible would be unlikely
to refuse to improve staff training or agree that a member of existing staff be given the
responsibility of acting as a customer complaints manager. A business might object to
being made to employ an entirely new member of staff to take on such a role, but it is
doubtful that this would be demanded of a small firm as it is unlikely that that would be
just reasonable and proportionate. Second, the example concerns legislation that has
been breached “inadvertently”. It is easy to see compliance measures as a more
80
81
2015 Guidance para 46.
2015 Guidance Case Study 7.
19
appropriate response than prosecution in such cases. It is also clear that being able to
add ECMs to undertakings makes them more useful than would previously have been the
case. However, it will still be easier for enforcers to deal with such situations through
informal means such as education and advice and, where breaches are inadvertent, they
are likely to be resolved in this way. The compliance strategies that provide the basis of
so much enforcement activity will remain the norm. Some cases will lead to
undertakings, as the enforcer may want to firm up the traders good intentions. But
relatively few are likely to lead to enforcement orders being sought, particularly given
the procedural obstacles to such orders discussed earlier.
The compliance category appears to address a number of concerns with the previous
law. Its flexibility is perhaps its greatest strength, allowing it to be shaped to be
responsive to the circumstances of the breach. One criticism of previous law is that it did
not focus sufficiently on changing behaviour. The compliance category has changing
behaviour at its core, not through deterrence, but through specifying what is necessary
for future compliance This should reduce what Regulatory Justice referred to as
compliance deficit. But some concerns remain. One is that whether the process is
resource-intensive depends to a large extent how the trader engages with it. As noted
above, if enforcers are expected to come up with solutions, there is a danger that
traders may act in ways that make it difficult for resolution to be achieved. While this is
less likely in cases where legislation is breached inadvertently and the trader generally
displays a willingness to comply, some traders will not be inclined to be so co-operative.
Enforcers may not be able to commit the resources they would like to pursue matters
further and thus may be under incentives to agree to measures that are less than
optimal. Where measures are proposed by the enforcer, there is likely to be debate over
the reasonableness and proportionality of the proposals. It is up to the enforcer to
quantify matters in order to be able to establish proportionality, but it has been noted
that this will be very difficult in practice. An enforcer may well believe that a trader’s
protests are disingenuous, but will find it difficult to prove that. So long as it is up to the
enforcer to demonstrate that proposals are not unjust unfair or disproportionate, this
problem will remain.
D. ECMs: The Choice Category
Section 219A(4) states that measures in the choice category are: “measures intended to
enable consumers to choose more effectively between persons supplying or seeking to
supply goods or services.” The rationale for the choice category (labelled curiously as
“Consumer Information Measures” in the Guidance) was said to be the Government’s
enthusiasm for seeing more confident consumers who are empowered to exercise
20
greater consumer choice and thus improve the functioning of the relevant market. 82 In
the Guidance, the example is of a business that described itself as closing down and
offering price reduction of 25% “this weekend only”. In fact, there was no price
reduction and the business was not closing down.83 In the example, a court order was
obtained requiring the business to display notices in store, on the website, on social
media and in the local press notifying consumers of their actions.
The principal focus of the choice category appears to be upon communicating
negative information about a business to consumers in order to assist them in exerting
market discipline. This is a particularly interesting power and needs to be viewed
through the lens of regulated adverse publicity (hereafter adverse publicity).84 It has
been argued that adverse publicity can play two roles in consumer protection law and
policy: it can operate as a sanction in its own right; and it can play a role in helping
consumers to exert market discipline by making informed choices about suppliers.85 In
relation to the first of these, enforcers use negative publicity as a sanction under a
number of regulatory regimes, with the publicity forming either the whole, or a part of
the sting of the penalty. For example, the Financial Conduct Authority (FCA) issues
public censure under the Financial Services and Markets Act 2000 as a formal
disciplinary tool, and may also use adverse publicity alongside another sanction (for
example when it issues a press release following the imposition of a financial penalty).
The basis for using adverse publicity as a sanction could be viewed as just deserts, but is
more likely to be explained on the basis of deterrence. Many traders will fear the impact
of adverse publicity and where they are motivated solely by profit the threat of such
publicity may deter potential wrongdoing. Indeed, the Hampton Review suggested that
reputational sanctions worked particularly well in the area of consumer protection. 86
It is the second role of adverse publicity, that of helping consumers to make
informed choices, which more obviously forms the basis of choice measures. In classical
economic theory, consumers make choices in accordance with their preferences in an
environment where they have a wide choice of suppliers and products and perfect (or
optimal) information upon which to make that choice. 87 It is unrealistic to expect these
factors to be present in all (or indeed many) markets, but adverse publicity through
choice measures may help to fill some information gaps. Choice measures may help to
ensure that consumers are informed about matters of importance to them. To make
informed choices, consumers are said to need information about price, quality and terms
82
BIS Civil Enforcement Remedies para 4.
2015 Guidance Case Study 8. Such practices are not uncommon.
84
See P. Cartwright “Publicity Punishment and Protection: the role(s) of adverse publicity in consumer policy”
2012 32(2) Legal Studies 179.
85
Ibid.
86
Hampton para 3.64.
87
London Economics Consumer Detriment under Conditions of Imperfect Information (London 1997).
83
21
of trade and an unregulated market will not always provide this.88 Choice measures can
be used to disclose information about the quality (broadly understood) of the provider,
for example by informing consumers about wrongdoing. The consumer for whom the
integrity or competence of a supplier is important can thus be informed about that.
When making its original case for reform, the Government argued that there was
a gap in consumer information “about where companies have broken the law or failed to
offer a good service.”89 Choice measures will only be used where there is a breach of the
law. They will not, therefore, be appropriate in all cases of, say, poor service. This might
be viewed as a regrettable limitation. Brooker, for example, argues, that “as a matter of
principle, consumers have a right to know when the behaviour of a business casts
serious doubts on its integrity or competence.”90 Choice remedies might appear only to
go so far towards addressing this because of their being rooted in a breach of the law.
However, it should be remembered that the consumer laws that form the basis of ECMs
are extremely broad, even where, as in this article, the focus is on the criminal law. The
CPUTRs, for example, prohibit a wide range of wrongdoing. As well as banning
misleading actions and omissions, aggressive commercial practices and a range of
specific matters, they state that a commercial practice is unfair if it “contravenes the
requirements of professional diligence and it materially distorts or is likely to materially
distort the economic behaviour of the average consumer with regard to the product.”
According to regulation 2(1), “professional diligence” means:
“the standard of special skill and care which a trader may reasonably be expected
to exercise towards consumers which is commensurate with either
(a)
honest market practice in the trader’s field of activity; or
(b)
the general principle of good faith in the trader’s field of activity.”
Conduct that reveals a lack of integrity will be well-suited to choice measures,
particularly where the basis of the choice remedy is the need to name and shame the
trader. Whether evidence of incompetence is fitting for a choice remedy is less clear. The
requirement of professional diligence is probably broad enough to cover this, and as has
been noted above, an argument for informing consumers about competence as well as
integrity.91 To the extent that they concern competence, choice remedies must be used
with some care. For example, where traders are flagged on a naming and shaming
88
Ibid.
Civil Enforcement Remedies para 3.22
90
S. Brooker Regulation and Reputation (London 2006) p 7
91
Unusually the professional diligence provision requires proof of mens rea, although what precisely that entails
remains unclear. See P. Cartwright “Unfair Commercial Practices and the Future of the Criminal Law” [2010]
(7) JBL, 619.
89
22
website, care needs to be taken to identify how, precisely, they have fallen short. For
them to be “shamed” there has to be some wrongdoing deserving of such shame, and it
is easy for consumers to misinterpret adverse publicity. The distinction between naming
and shaming websites, and customer review/feedback sites is by no means a clear one.
Reference was made above to the danger that prosecution will sometimes be a
disproportionate response to breach, and one reason for this is that it might be taken to
imply stigma when such stigma was not deserved. Traders may, of course, challenge
orders which contain ECMs on the basis of their being disproportionate, but one problem
with adverse publicity is that its impact is difficult to quantify, particularly in advance.
It is worth digging a little more deeply into the issue of proportionality here. As
noted above, ECMs must be just, reasonable and proportionate. Where an enforcer seeks
an undertaking, it is likely that there will be discussion about the justice, reasonableness
and proportionality of what is being proposed during the process of consultation. Where
an enforcement order is sought, the trader may challenge this. This occurred in Office of
Fair Trading v Purely Creative and Others where the defendants argued that they had
not breached the relevant legislation (in this case the CPUTRs) and, in the alternative,
that the order sought went far beyond that required to secure compliance and was too
generalised for the defendants to know what they were to be prohibited from doing. 92
Where an order is sought, it will mean either that it has not been possible to obtain
assurances or that assurances obtained have been breached. The court will be able to
take a range of factors into account when deciding whether an order might be unjust,
unreasonable or disproportionate. The decided cases on enforcement orders are not
particularly helpful as they do not concern ECMs. The lack of detail in legislation as to
what ECMs may require is deliberate so as to allow a maximum degree of flexibility. As
has been shown, the Guidance provides some assistance, but significant doubt remains
about how willing the courts will be to make orders which place what might be viewed as
onerous demands on traders. One difficulty is that the Guidance provides relatively
obvious examples of conduct that would justify orders containing ECMs: a garage owner
who becomes uncooperative after over-changing customers; an online retailer which
refuses to improve staff training after breaching a promise of next day delivery; and a
business that describes itself as offering a price reduction and closing down when neither
is true. The respective requirements in the orders appear eminently reasonable:
payment of the amount wrongly obtained to a local charity; improving staff training and
designating a member of staff as consumer complaints manager; and requiring the
business to display notices in store, on the website, on social media and in the local
press notifying consumers of what they have done wrong. There will be far more difficult
cases in practice where the court will have to consider the impact on the trader and the
92
[2011] EWHC 106 (Ch) para 5.
23
benefit to consumers in far more detail to ascertain whether the order might be unjust,
unreasonable or disproportionate. Particular difficulty is likely to arise where the enforcer
seeks an order to use ECMs in combination. It was noted above that while redress
measures will typically take precedence when using ECMs in combination might be
disproportionate, it will sometimes be possible to use all three measures in combination.
It is important that the courts show a willingness to accept such measures where
significant benefits would be obtained. It should be remembered that the different
categories of ECM have discrete and important objectives. Redress measures are largely
concerned with compensation; compliance measures with reducing the probability of
further contraventions and choice measures with improving the ability of consumer to
make informed choices and exert market discipline. It is perhaps where choice measures
form part of the order that disproportionality is most likely to arise. This is because it is
the measure whose impact is most difficult to predict. While there is evidence that
similar powers can work well as a deterrent, and as such as a way of raising standards
and improving compliance, this is partly because of the danger that they might operate
in a disproportionate manner.93 Literature on adverse publicity reveals significant
concern that the impact of negative information can be disproportionate. 94 It may be
that where choice measures form part of an enforcement order that traders will have the
best chance of challenge on the bases of justice, reasonableness and proportionality.
A further point is that if there is significant wrongdoing we might expect more
explicit punishment. In particular, where conduct is deserving of shame, we might
expect prosecution to follow so as to reflect that.95 It has been noted that adverse
publicity can operate as a form of punishment, but there is a reluctance to view ECMs in
this way. It is to the relationship between ECMs, prosecution and punishment that we
now turn.
IV. ECMs, PROSECUTION AND THE RETREAT FROM PUNISHMENT
When ECMs were first proposed there was considerable doubt about whether they could
be used alongside prosecution. The Government was eager to move cases from criminal
to civil courts and, where undertakings were secured by enforcers, out of the courts
altogether. One sentence in the Consultation was a particular cause for concern: “[t]he
option of achieving remedies of this type may only be appropriate [my emphasis] where
93
See K. Yeung Is the Use of Informal Adverse Publicity a Legitimate Regulatory Compliance Technique?
(Melbourne 2002) 40.
94
J.C. Coffee Jr “No soul to damn no body to kick: an unscandalized inquiry into the problem of corporate
punishment” (1981) 79 Mich L Rev 386; Yeung pp 40-41.
95
Not that shame operates only in a retributive sense. See J. Braithwaite Crime, Shame and Reintegration
(Cambridge 1989)
24
there is no wider public interest in criminal prosecution.”96 This implied that prosecution
and the securing of ECMs were incompatible.97 This was extremely concerning.
As has been explained above, ECMs play an important role in addressing many of
the shortcomings associated with the enforcement of consumer protection law. Despite
their limitations, they will make it easier for courts and enforcers to secure redress,
achieve compliance and facilitate choice. But they do not sanction the trader, in the
sense of imposing a punishment. There will be many cases where the imposition of
punishment is not only desirable but essential because of the wrongdoing involved. Were
prosecution to be unavailable alongside ECMs, how should enforcers approach a trader
who engaged in conduct that undoubtedly warranted a criminal penalty, but which also
led to significant loss to consumers? Denying access to ECMs on the basis that a
prosecution is necessary would be perverse. Enforcers have always been able to use Part
8 alongside criminal prosecution, but the Government appeared not to appreciate this. In
its response to consultations, the Government stated that “as an alternative [my
emphasis] to criminal prosecution” consumer law enforcers can seek an Enforcement
Order.”98
The Guidance now makes clear that while in most cases where the measures are
appropriate they will be an alternative to criminal prosecution, “there may be cases
where the offences are serious enough to warrant them being used in conjunction with
criminal prosecution”.99 A case study in the Guidance gives an example of how
prosecution might be used alongside ECMs. It concerns a business selling mobility aids
through a combination of cold calling and high pressure doorstep selling. In addition the
products supplied were often not fit for purpose and priced at an amount higher than
that originally quoted.100 The company and its directors were prosecuted and a
conviction was achieved. The enforcer then obtained an enforcement order under the
redress category. The 20 consumers who wanted to return their mobility aid and obtain
a refund were able to do so, while the five consumers who wanted to keep their aid
received the difference between the price quoted and the price paid.
The decision to allow prosecution to be taken alongside the ECMs is undoubtedly
the correct one, and the example given is one where prosecution and ECMs should be
able to work together. But the reluctance of the Government for the two to be combined
remains a deep cause for concern. The desire to move cases from the criminal courts is
understandable, and there is little doubt that there will be breaches of consumer
96
Civil Enforcement Remedies para 1.8.
This was indeed the view of BIS at the time (discussion on file with the author).
98
Civil Enforcement Remedies para 5.
99
2015 Guidance p 5.
100
2015 Guidance case study 2.
97
25
protection law that do not warrant prosecution.101 But it far from clear that the majority
of the cases that currently lead to prosecution should be dealt with outside the criminal
process. Enforcers exercise considerable discretion before deciding to prosecute, taking
into account a range of factors such as the culpability and attitude of the trader and the
degree of harm caused.102 As a consequence, many of the prosecutions for consumer
protection offences that currently take place are those where the enforcer believes
significant culpability to be present. This will not always be apparent to those who are
not directly involved with the case. Moreover, because the offences are generally of strict
liability, mens rea will not be central to guilt.103
There is a significant danger that in the move towards ECMs, we lose the benefits
that prosecution brings. Compelling arguments can be made to defend the use of
prosecution in the context of consumer protection law, particularly if we think about the
rationales for the imposition of punishment. Two aims are particularly relevant:
retribution (particularly in the form of just deserts) and changing behaviour (particularly
through deterrence).
ECMs are not punishments and they can be used where the language of
punishment is not appropriate. However, where consumer protection law is breached,
punishment frequently is appropriate. A primary aim of punishment is retribution,
usually expressed as “just deserts”.104 A punishment is imposed to reflect the
wrongdoing in which the trader has engaged. Indeed, Regulatory Justice argued that an
aim of a penalty is to be responsive and that this involves considering what is
appropriate for the particular offender and regulatory issue. It was recognised that this
can include punishment and the public stigma that should be associated with a criminal
conviction. If cases are diverted from the criminal courts to negotiations between
enforcer and trader and (occasionally) from criminal to civil courts there is a danger that
this is lost. Appropriate labelling is particularly important in the most serious cases, i.e.
where there is significant harm and/or significant culpability. It was suggested above
that the Government’s calls for the criminal law to be reserved for “out and out rogues”
is mistaken from the perspective of just deserts. There are other cases where the label
of criminality is appropriately imposed in the absence of traditional, subjective mens rea,
in the form of intention or dishonesty. An example might be where the harm caused is
substantial and the trader clearly should have done more to take care. Traders who
breach norms carelessly but unintentionally have been characterised by Kagan and
101
Trading Standards estimated that 476 cases which were prosecuted in 2011-12 might have been suitable for
civil action had better remedies been in place. See BIS Impact Assessment para 16.
102
P. Cartwright Consumer Protection and the Criminal Law 222-230.
103
It will be relevant in some cases, such as where directors are prosecuted for offences committed by their
companies with their consent connivance and neglect, and potentially in cases where a defence such as due
diligence is pleaded.
104
A. Von Hirsch Doing Justice (New York 1976).
26
Scholz as the “organisationally incompetent”. 105 Not all incompetence justifies a criminal
label, but some does. That the criminal law has a role in tackling traders who could be
expected to do more is recognized through offences that impose objective forms of mens
rea (such as gross negligence manslaughter and corporate killing) and also through strict
liability offences which are subject to due diligence defences. The offences contained in
the CPRs are examples of this; the criminal law states, in effect, that D should have done
more and is being punished for failure to act in an appropriate manner. This can be
justified in part on the basis of just deserts. Many cases of incompetence will be diverted
from the criminal courts (as in practice they have been for decades). But if just deserts
and appropriate labelling are to be achieved, those involving the most serious neglect
should remain.
A second aim of imposing punishment/penalties is to change behaviour. The
extent to which ECMs achieve this has been discussed above, particularly in the context
of compliance measures. Traditional theories of punishment can be divided between
those that are consequentialist and those that are non-consequentialist. Retribution is a
non-consequentialist theory; the punishment is imposed to reflect the defendant’s
wrongdoing.
However,
consequentialist theories.
of
106
more
obvious
relevance
to
consumer
protection
are
These justify punishment on the basis of the need to change
the defendant (or at least, the defendant’s conduct). Where regulatory offences are
concerned, changing behaviour is perhaps the principal aim of prosecution (or, indeed,
other forms of penalty). This might be conceived in different ways. For example, we
might punish in order to deter the trader from engaging in similar conduct in future
(individual deterrence) or in order to deter others from committing similar wrongdoing
(general deterrence). It might be argued in some cases that punishment has a role in
rehabilitation, although this is likely to be rare.107
There are significant concerns with the notion of deterrence in the narrow sense
of deterring someone from deliberately breaking the law. Regulatory Justice focused of
course on the shortcomings of prosecution for regulatory offences and there is no doubt
that prosecution (and in particular, the consequences of being prosecuted) were
inadequate. The importance of enforcers providing “credible deterrence” has come
particularly to the fore in some areas, such as financial regulation. 108 The need to deter
substantial wrongdoers is also recognized by the Government’s reference to “out and out
rogues”. It is also worth noting, that since subsections (1), (2) and (4) of s. 85 of the
105
R. Kagan and J. Scholz “The “Criminology of the Corporation” and Regulatory Enforcement Strategies” in
K. Hawkins and J. Thomas (eds) Enforcing Regulation (Dordrecht1984).
106
C. Wells Corporations and Criminal Responsibility 2nd ed (Oxford 2001) chap 2.
107
P Cartwright Consumer Protection and the Criminal Law 78-79.
108
See T. McDermott “Enforcement and Credible Deterrence in the FCA” available at:
http://www.fca.org.uk/news/speeches/enforcement-and-credible-deterrence-in-the-fca
(accessed 10-8-15).
27
Legal Aid, Sentencing and Punishment of Offenders Act 2012 were brought into force (on
12th March 2015) magistrates’ courts have not been restricted to specified upper limits
when deciding the level fine to impose upon defendants. This will apply to some pieces
of consumer protection legislation. It means that at least in some cases, it is possible for
the courts to impose penalties that are more likely both to deter, and to reflect the
degree of wrongdoing involved.
As has been recognized, some traders are amoral calculators, incentivised to
comply only by the credible threat of a compelling sanction.109 There seems to be broad
agreement that deterrence, achieved through the criminal law, has a role in dealing with
such traders. But a number of caveats should be added. First, it is far from clear that
enforcers will be inclined to prosecute even where there is evidence of mens rea. The
push towards moving cases from criminal to civil courts is likely to mean that some
cases which involve high levels of culpability are diverted away from the criminal
process. Second, there is a compelling argument that threatening prosecution focuses
the minds of traders and incentivises them to take greater care, and to devote more
resources to checking, monitoring, supervising, and training. This has been seen as a
rationale for regulatory offences. In the Trade Descriptions case of Wings v Ellis, Lord
Scarman famously said that the point of prosecution was not the enforcement of the law
so much as the maintenance of trading standards. 110 It has been recognized that when
the criminal law is used against businesses, its purpose includes the encouraging of good
practice.111 Consumer protection offences are examples of regulatory offences which
incentivise care by being subject to due diligence defences. A trader who has done all
that he or she reasonable could to avoid the commission of the offence is not guilty.
Some of this risks being lost in the move away from the prosecution. It is hoped, of
course, that the wish to avoid ECMs will also encourage good practice. It should also be
remembered that informal enforcement takes place against the background of the threat
of more formal action. It may be that knowledge on the part of traders that enforcers
can prosecute, and courts can impose ECMs will focus the minds of traders on their
obligations. But the obstacles placed in the way of formal action make this less of threat
than it might be.
V. CONCLUSIONS
There is little doubt that the ability of the courts and of enforcers to secure positive
outcomes for consumers is strengthened by the creation of ECMs. The weaknesses of
relying on the prosecution of traders and the seeking of undertakings and enforcement
orders to deliver the aims of consumer protection law are well-established; at least some
109
Kagan and Scholz “the Criminology of the Corporation”.
[1985] A.C. 272, at 293.
111
C. Wells Corporations and Criminal Responsibility 31.
110
28
of these weaknesses are addressed directly by the ability of enforcers to pursue ECMs.
Macrory identified two of the weaknesses of regulatory offences as their inadequate
focus on the victim and their tendency to lead to a compliance deficit.112 Redress
measures will assist enforcers in obtaining redress (and in particular compensation) for
consumers where other tools impose barriers, thus allowing greater focus on the
interests of the victim. Compliance measures should address compliance deficit by
making it easier for enforcers to procure agreements from, and the courts to impose
requirements on, traders, thus reducing the probability of future contravention. Choice
measures will not only allow for the dissemination of information that is likely to improve
consumer decision-making but will also provide a further incentive for traders both to
choose to comply in the first place, and to choose to take care to avoid careless breaches
that might lead to negative publicity. Although ECMs are not generally conceived as
sanctions or penalties, they may operate as such in some cases. To the extent that they
do, they may sometimes operate more successfully as a deterrent, and better reflect the
stigma that should attach to a particular contravention, than would prosecution. The
existence of ECMs means that enforcers will sometimes be able to negotiate better
outcomes for consumers who have suffered detriment, while putting in place measures
to reduce the chances of conduct being repeated.
Despite these advances, concerns remain. The procedural obstacles that
enforcers face will frequently make it difficult for them to achieve optimal outcomes. It
is disappointing that rather than overcome these obstacles, the changes may have in
some respects have increased them. It is extremely important that prosecution can be
used alongside ECMs. Had they been alternatives, as was originally mooted, enforcers
would have found themselves in the undesirable position of choosing between the
seeking of positive outcomes for consumers, and the imposition of an appropriate
penalty upon a wrongdoer. Typically, this would be a choice between restoration or
retribution when both were demanded. Despite what was said above about the potential
for an ECM to sometimes operate in a manner similar to a punishment, they are no
substitute for prosecution where the seriousness of a transgression justifies that
response. However, it is important not only that enforcers can pursue prosecution where
that is the most fitting response, but that they do so. The Government’s reluctance to
see these actions being taken in combination may still translate into cases which deserve
prosecution being diverted from the criminal courts. This is regrettable in terms of
appropriate labelling, but also from an instrumental perspective, as it may reduce the
ability of the law to incentivise compliance. In this regard the changes introduced by the
Consumer Rights Act 2015 can be seen as both a step forward and a step backwards.
112
Macrory paras 1.21 and 2.27.
29
30